US Ecology, Inc. Q Earnings Conference Call

Transcription

1 US Ecology, Inc. Q Earnings Conference Call February 16,

2 Today s Hosts Jeff Feeler Chairman & Chief Executive Officer Eric Gerratt Executive Vice President & Chief Financial Officer Steve Welling Executive Vice President of Sales and Marketing Simon Bell Executive Vice President and Chief Operating Officer 2 2

3 Safe Harbor During the course of this presentation the Company will be making forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) that are based on our current expectations, beliefs and assumptions about the industry and markets in which US Ecology, Inc. and its subsidiaries operate. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on management's beliefs and assumptions, which in turn are based on currently available information. Important assumptions include, among others, those regarding demand for Company services, expansion of service offerings geographically or through new or expanded service lines, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forwardlooking statement. Many of these factors are beyond our ability to control or predict. Such factors include the replacement of non-recurring event clean-up projects, a loss of a major customer, our ability to permit and contract for timely construction of new or expanded disposal cells, our ability to renew our operating permits or lease agreements with regulatory bodies, loss of key personnel, compliance with and changes to applicable laws, rules, or regulations, access to insurance, surety bonds and other financial assurances, a deterioration in our labor relations or labor disputes, our ability to perform under required contracts, failure to realize anticipated benefits and operational performance from acquired operations, adverse economic or market conditions, government funding or competitive pressures, incidents or adverse weather conditions that could limit or suspend specific operations, access to cost effective transportation services, fluctuations in foreign currency markets, lawsuits, our willingness or ability to repurchase shares or pay dividends, implementation of new technologies, limitations on our available cash flow as a result of our indebtedness and our ability to effectively execute our acquisition strategy and integrate future acquisitions. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (the SEC ), we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on our forward-looking statements. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results or performance. Before you invest in our common stock, you should be aware that the occurrence of the events described in the "Risk Factors" sections of our annual and quarterly reports could harm our business, prospects, operating results, and financial condition. 3 3

4 Highlights Financial Review Q Full Year Results Financial Position, Cash Flow & Return Metrics 2018 Business Outlook Questions & Comments Appendix: Financial Results & Reconciliations Agenda 4 4

5 Q4-17 Highlights Revenues of $133.7 million and adjusted EBITDA 1 of $35.7 million Adjusted Earnings Per Share 1 of $0.73 Results in line with expectations, business conditions improving Environmental Services Segment revenue grew 14% Base Business up 11%, stronger than expected Texas benefitted from post Hurricane Harvey recovery Strong 8% growth ex-texas Event Business up 36% Growth benefitted from soft Q4 16 Slightly less than expected as volume pushed into 2018 Down 7% sequentially from Q Field and Industrial Service Segment revenue grew 14% Strong growth led by total waste management, industrial services and remediation Small Quantity Generation grew low single digits, more than replacing non-renewed contract in Q See definition and reconciliation of adjusted EBITDA and adjusted earnings per share on pages of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K 5

6 Unanticipated challenges masked underlying business conditions Revenue growth of 6% over 2016 Adjusted EBITDA 1 grew 1% over 2016 Adjusted EPS 1 of $1.71 per share, up 12% over 2016 Significant accomplishments will generate long term returns Nevada landfill permitted and constructed (+40 years capacity) Texas landfill permit expansion substantially complete (+20 years capacity) Permit modifications at multiple facilities enhance network Debt refinancing adds capacity and reduces cash interest costs Continued investments in business and people $10 million of new growth capital deployed Investing in our talent and human capital initiatives to help retain and recruit Significant progress on our new information system platform 2017 events laid groundwork for future performance 2017 Highlights Industry fundamentals continued to build culminating in strong Q4 results Multiple contract wins across service lines to support growth in 2018 and See definition and reconciliation of adjusted EBITDA and adjusted earnings per share on pages of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K 6

7 Financial Review 7

8 Q4-17 Financial Review Total revenue $133.7 million, up 14% compared with $117.2 million last year Q4 17 Revenue by Segment ES revenue $97.8 million compared to $85.7 million in prior year 15% higher treatment and disposal revenue Growth in the chemical manufacturing, metal manufacturing, refining, and mining and E&P industry groups, partially offset by declines in the broker/tsdf and transportation industry groups Base business up 11% compared to the prior year 27% 73% ES FIS Event business up 36% compared to prior year 11% higher transportation revenue Q4 16 Revenue by Segment FIS revenue $35.9 million, up 14% from $31.5 million in prior year Stronger overall market conditions 27% 73% ES FIS 8

9 Q4-17 Financial Review Environmental Services T&D Revenue by Industry Percent of Total Percent Change Q4 '17 Q4 '16 Q4 '17 vs. Q4 '16 Chemical Manufacturing 19% 15% 50% Metal Manufacturing 17% 15% 28% General Manufacturing 12% 14% 0% Broker / TSDF 11% 14% -6% Refining 11% 11% 22% Government 5% 5% 15% Utilities 4% 4% 3% Mining and E&P 3% 2% 81% Waste Management & Remediation 3% 3% 29% Transportation 2% 3% -23% Other 13% 14% 2% Environmental Services T&D Revenue by Industry % Change - Q4 '17 vs. Q4 '16 Base Event Chemical Manufacturing 36% 68% Metal Manufacturing 1% 1457% General Manufacturing 18% -79% Broker / TSDF -7% 182% Refining 50% -81% Government -22% 50% Utilities -8% 24% Mining and E&P 36% 2597% Waste Management & Remediation 42% -1% Transportation -24% 13% Other 5% 32% 9

10 Q4-17 Financial Review Gross profit of $47.6 million, up from $36.1 million in Q4-16 ES gross profit of $42.5 million, up from $32.1 million in Q4-16 T&D margin of 47%, up from 41% in Q4-16 $2.6 million of business interruption insurance proceeds FIS gross profit of $5.2 million, up from $4.0 million in Q4-16 SG&A of $22.3 million compared with $19.9 million in Q4-16 Higher labor and incentive compensation Higher consulting and professional services expenses Lower bad debt expense Operating income of $16.4 million, up from $16.2 million in Q4-16 Q4-17 operating income reflects $8.9 million of impairment charges Excluding goodwill impairment, operating income grew 56% 10 10

11 Q4-17 Financial Review Net income of $30.8 million, or $1.40 per diluted share, compared with $7.7 million, or $0.35 per diluted share in Q4-16 Q4-17 net income reflects favorable tax reform impact of approximately $23.8 million, or $1.08 per diluted share Adjusted EPS 1 of $0.73 per share compared with $0.36 per diluted share in Q4-16 Adjusted EBITDA 1 of $35.7 million, up from $27.3 million in Q4-16 Includes pre-tax business development expenses of $117,000 and $138,000 for the three months ended December 31, 2017 and 2016, respectively 11 1 See definition and reconciliation of adjusted earnings per share and adjusted EBITDA on pages of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K 11

12 YTD Financial Review Total revenue of $504.0 million, compared with $477.7 million last year ES Segment revenue was $366.3 million, compared with $337.8 million last year FIS Segment revenue was $137.7 million, compared with $139.9 million last year Gross profit of $153.1 million, up from $147.6 million last year ES gross profit of $135.0 million, up from $126.8 million last year FIS gross profit of $18.2 million, down from $20.8 million last year SG&A of $84.5 million compared with $77.6 million last year Higher labor and incentive compensation $1.1 million for property tax assessment for , Company is appealing Lower bad debt expense Net income was $49.4 million, or $2.25 per diluted share, up from $34.3 million, or $1.57 per diluted share, last year Adjusted EBITDA 1 was $113.8 million, compared with $112.8 million last year Adjusted EPS 1 of $1.72 per share, up from $1.53 per share last year 12 1 See definition and reconciliation of adjusted earnings per share and adjusted EBITDA on pages of this presentation or attached as Exhibit A to our earnings release filed with the SEC on Form 8-K 12

13 Financial Position & Cash Flow Metrics Net borrowings on credit agreement = $250.0 million Working capital = $81.1 million Net debt/ebitda leverage = 2.20 YTD cash generated from operations = $81.0 million YTD capital expenditures = $36.2 million YTD dividends paid = $15.7 million YTD debt repayment = $10.9 million (excl. refinancing) YTD free cash flow 1 = $48.1 million (in t housands) December 31, 2017 December 31, 2016 Assets Current Assets: Cash and cash equivalents $ 27,042 $ 7,015 Receivables, net 110,777 96,819 Other current assets 9,138 11,534 Total current assets 146, ,368 Long-term assets 655, ,032 Total assets $ 802,076 $ 776,400 Liabilities and Stockholders Equity Current Liabilities: Accounts payable, accrued liabilities, income taxes payable $ 54,968 $ 47,438 Deferred revenue 8,532 7,820 Current portion of closure and post-closure obligations 2,330 2,256 Other current liabilities - 5,080 Total current liabilities 65,830 62,594 Long-term closure and post-closure obligations 73,758 72,826 Long-term debt 277, ,459 Other liabilities 61,411 86,497 Total liabilities 477, ,376 Stockholders Equity 324, ,024 Total liabilities and stockholders' equity $ 802,076 $ 776,400 Working Capital $ 81,127 $ 52,774 Year Ended December 31, Selected Cash Flow Items: Net cash provided by operating activities $ 81,016 $ 74,627 Free cash flow 1 $ 48,142 $ 41, See reconciliation of free cash flow on page 27 of this presentation 13

14 2018 Business Outlook Adjusted EBITDA 1 estimated to range from $122 million to $128 million Represents growth up to 12% over 2017 Pro Forma adjusted EBITDA Earnings per diluted share 1 estimated between $2.15 to $2.34 Represents growth up to 36% over 2017 adjusted EPS Tax reform positively impacting results by approximately $0.26 per share 2018 revenue estimate of $530 million to $553 million ES revenue range of $385 million to $393 million FIS revenue range of $145 million to $160 million 14 1 Guidance excludes non-cash foreign currency translation gains or losses, and business development expenses 14

15 2018 Segment Outlook ES Segment Base Business expected to grow 3%-5% Event pipeline continues to build Both new and existing opportunities providing optimism Single digit growth in 2018 expected FIS Segment New contracts won in 2017 Improving conditions for industrial and remediation service offerings Total waste management, small quantity generation and industrial services to drive growth 15 15

16 2018 Business Outlook Normal seasonality expected Q1 expected to be the lowest quarter of year in revenue and profits Q1 likely flat to slightly up from Q1 17 Cycling strong Base Business in Q1 17 Results to build over the balance of the year Tax rate expected to approximate 27% Earnings per share estimates assume $20 million of debt repayment Capital Expenditures estimated between $39 million to $42 million $15 million to $17 million in new landfill construction Heavy landfill construction year; Expect similar levels in 2019 $10 million in growth capital Deployment dependent on ROI Balance of $14 million to $15 million of maintenance capital Represents a 24% reduction over 2017 levels 16 16

17 Questions and Comments We invite your questions & comments! 17 17

18 Appendix We invite your questions & comments! 18 18

19 Non-GAAP Financial Measures US Ecology reports adjusted EBITDA, Pro Forma adjusted EBITDA, adjusted earnings per diluted share and free cash flow results, which are non-gaap financial measures, as a complement to results provided in accordance with generally accepted accounting principles in the United States (GAAP) and believes that such information provides analysts, stockholders, and other users information to better understand the Company s operating performance. Because adjusted EBITDA, Pro Forma adjusted EBITDA, adjusted earnings per diluted share and free cash flow are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations they may not be comparable to similar measures used by other companies. Items excluded from adjusted EBITDA, Pro Forma adjusted EBITDA, adjusted earnings per diluted share and free cash flow are significant components in understanding and assessing financial performance. Adjusted EBITDA, Pro Forma adjusted EBITDA, adjusted earnings per diluted share and free cash flow should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Adjusted EBITDA, Pro Forma adjusted EBITDA, adjusted earnings per diluted share and free cash flow have limitations as analytical tools and should not be considered in isolation or a substitute for analyzing our results as reported under GAAP

20 Non-GAAP Financial Measures - Definitions Adjusted EBITDA The Company defines adjusted EBITDA as net income before interest expense, interest income, income tax expense, depreciation, amortization, stock based compensation, accretion of closure and post-closure liabilities, foreign currency gain/loss, non-cash impairment charges and other income/expense, which are not considered part of usual business operations. Pro Forma Adjusted EBITDA The Company defines Pro Forma adjusted EBITDA as adjusted EBITDA (see definition above) plus business development expenses incurred during the period. We believe Pro Forma adjusted EBITDA is helpful in understanding our business and how it relates to our 2018 guidance which does not include business development expenses. Adjusted Earnings Per Diluted Share The Company defines adjusted earnings per diluted share as net income adjusted for the after-tax impact of the non-cash impairment charges, the impact of tax reform, the after-tax impact of the non-cash write-off of deferred financing fees related to our former credit agreement, the after-tax impact of business development costs, gains and losses on sale of divested businesses and non-cash foreign currency translation gains or losses, divided by the number of diluted shares used in the earnings per share calculation. Impairment charges excluded from the earnings per diluted share calculation are related to the Company s annual goodwill and intangible asset impairment assessment. The foreign currency translation gains or losses excluded from the earnings per diluted share calculation are related to intercompany loans between our Canadian subsidiaries and the U.S. parent which have been established as part of our tax and treasury management strategy. These intercompany loans are payable in Canadian dollars ( CAD ) requiring us to revalue the outstanding loan balance through our consolidated income statement based on the CAD/United States currency movements from period to period. Business development costs relate to expenses incurred to evaluate businesses for potential acquisition or costs related to closing and integrating successfully acquired businesses. The non-cash write-off of deferred financing fees relates to the write-off of the remaining unamortized fees associated with our former credit agreement which was refinanced in April We believe excluding non-cash impairment charges, the impact of tax reform, the after-tax impact of the non-cash write-off of deferred financing fees related to our former credit agreement, the after-tax impact of business development costs, gains and losses on sale of divested businesses and non-cash foreign currency translation gains or losses provides meaningful information to investors regarding the operational and financial performance of the Company. Free Cash Flow The Company defines free cash flow as net income plus non-cash impairment charges, less the impact of tax reform, plus non-cash writeoffs of deferred financing fees, plus depreciation and amortization, plus accretion and non-cash adjustments of closure and post-closure obligations, plus stock-based compensation, plus/(minus) foreign currency loss/(gain), less capital expenditures

21 Financial Results: Q4 17 vs. Q4 16 (in t housands, except per share dat a) $ Change % Change Revenue $ 133,697 $ 117,172 $ 16, % Gross profit 47,625 36,127 11, % SG&A 1 22,308 19,883 2, % Impairment charges 8,903-8,903 n/m Operating income 1 16,414 16, % Interest expense, net (2,757) (4,161) 1, % Foreign currency gain (loss) (5) (330) % Other income % Income before income taxes 13,906 11,904 2, % Income tax expense (16,860) 4,221 (21,081) % Net income $ 30,766 $ 7,683 $ 23, % Earnings per share: Basic $ 1.42 $ 0.35 $ % Diluted $ 1.40 $ 0.35 $ % Shares used in earnings per share calculation: Three Months Ended December 31, Basic 21,780 21,717 Diluted 21,930 21,814 1 Includes pre-tax Business Development expenses of $117,000 and $138,000 for the three months ended December 31, 2017 and 2016, respectively

22 Financial Results: Q4 17 vs. Q4 16 Three Months Ended December 31, (in t housands) $ Change % Change Adjusted EBITDA / Pro Forma Adjusted EBITDA Reconciliation Net income $ 30,766 $ 7,683 Income tax expense (16,860) 4,221 Interest expense, net 2,757 4,161 Foreign currency (gain) loss Other (income) expense (254) (151) Depreciation and amortization 7,295 6,743 Amortization of intangibles 2,303 2,668 Stock-based compensation Accretion and non-cash adjustments of closure & post-closure obligations (219) 872 Impairment charges 8,903 - Adjusted EBITDA 1 $ 35,674 $ 27,271 $ 8, % Business development expenses Pro Forma Adjusted EBITDA $ 35,791 $ 27,409 $ 8, % Adjusted EBITDA by Operating Segment: Environmental Services $ 44,349 $ 35,347 9, % Field & Industrial Services 4,879 3,075 1, % Corporate 1 (13,554) (11,151) (2,403) 21.5% Total $ 35,674 $ 27,271 $ 8, % 1 Includes pre-tax Business Development expenses of $117,000 and $138,000 for the three months ended December 31, 2017 and 2016, respectively

23 Financial Results: Q4 17 vs. Q4 16 Three Months Ended December 31, (in t housands, except per share dat a) Adjusted Earnings Per Share Reconciliation Income before income taxes Income tax Net income per share Income before income taxes Income tax Net income per share As reported $ 13,906 $ 16,860 $ 30,766 $ 1.40 $ 11,904 $ (4,221) $ 7,683 $ 0.35 Adjustments: Plus: Impairment charges 8,903-8, Less: Impact of tax reform - (23,778) (23,778) (1.08) Plus: Business development costs 117 (42) (49) 89 - Non-cash foreign currency translation loss 73 (26) (146) As adjusted $ 22,999 $ (6,986) $ 16,013 $ 0.73 $ 12,453 $ (4,416) $ 8,037 $ 0.36 Shares used in earnings per diluted share calculation 21,930 21,

24 Financial Results: 2017 vs (in t housands, except per share dat a) $ Change % Change Revenue $ 504,042 $ 477,665 $ 26, % Gross profit 153, ,595 5, % SG&A 1 84,466 77,566 6, % Impairment charges 8,903-8,903 n/m Operating income 1 59,758 70,029 (10,271) -14.7% Interest expense, net (18,095) (17,221) (874) 5.1% Foreign currency gain 516 (138) % Other income 791 2,631 (1,840) -69.9% Income before income taxes 42,970 55,301 (12,331) -22.3% Income tax expense (6,395) 21,049 (27,444) % Net income $ 49,365 $ 34,252 $ 15, % Earnings per share: Basic $ 2.27 $ 1.58 $ % Diluted $ 2.25 $ 1.57 $ % Shares used in earnings per share calculation: Year Ended December 31, Basic 21,758 21,704 Diluted 21,902 21,789 1 Includes pre-tax Business Development expenses of $500,000 and $637,000 for the year ended December 31, 2017 and 2016, respectively

25 Financial Results: 2017 vs Year Ended December 31, (in t housands) $ Change % Change Adjusted EBITDA / Pro Forma adjusted EBITDA Reconciliation Net income $ 49,365 $ 34,252 Income tax expense (6,395) 21,049 Interest expense, net 18,095 17,221 Foreign currency gain (516) 138 Other income (791) (2,631) Depreciation and amortization 28,302 25,304 Amortization of intangibles 9,888 10,575 Stock-based compensation 3,933 2,925 Accretion and non-cash adjustments of closure & post-closure obligations 3,026 3,953 Impairment charges 8,903 - Adjusted EBITDA 1 $ 113,810 $ 112,786 $ 1, % Business development expenses Pro Forma adjusted EBITDA $ 114,310 $ 113,423 $ % Adjusted EBITDA by Operating Segment: Environmental Services $ 146,371 $ 139,698 6, % Field & Industrial Services 14,709 16,342 (1,633) -10.0% Corporate 1 (47,270) (43,254) (4,016) 9.3% Total $ 113,810 $ 112,786 $ 1, % 1 Includes pre-tax Business Development expenses of $500,000 and $637,000 for the year ended December 31, 2017 and 2016, respectively

26 Financial Results: 2017 vs Year Ended December 31, (in t housands, except per share dat a) Adjusted Earnings Per Share Reconciliation Income before income taxes Income tax Net income per share Income before income taxes Income tax Net income per share As reported $ 42,970 $ 6,395 $ 49,365 $ 2.25 $ 55,301 $ (21,049) $ 34,252 $ 1.57 Adjustments: Plus: Impairment charges 8,903-8, Less: Impact of tax reform - (23,778) (23,778) (1.08) Plus: Non-cash write-off of deferred financing fees related to former credit agreement 5,461 (1,972) 3, Plus: Business development costs 500 (181) (242) Less: Gain on sale of divested business (2,034) 774 (1,260) (0.06) Non-cash foreign currency translation (gain) loss (1,124) 406 (718) (0.03) 88 (33) 55 - As adjusted $ 56,710 $ (19,130) $ 37,580 $ 1.72 $ 53,992 $ (20,550) $ 33,442 $ 1.53 Shares used in earnings per diluted share calculation 21,902 21,

27 Free Cash Flow: 2017 vs Year Ended December 31, (in t housands) Free Cash Flow Reconciliation Net income $ 49,365 $ 34,252 Impairment charges 8,903 - Impact of tax reform (23,778) - Non-cash write-off of deferred financing fees related to former credit agreement 5,461 - Depreciation and amortization 28,302 25,304 Amortization of intangibles 9,888 10,575 Accretion and non-cash adjustments of closure & post-closure obligations 3,026 3,953 Stock-based compensation 3,933 2,925 Foreign currency gain, after tax (718) 55 Capital expenditures (36,240) (35,696) Free Cash Flow $ 48,142 $ 41,